NVIDIA profits tumble; Rambus seeks vid card import ban

NVIDIA's third quarter results are out, and the company is hurting. Finances …

NVIDIA has released its third-quarter results for its fiscal year of 2009 (roughly corresponding to the third quarter of 2008); the results reflect a very rocky quarter for the company. Year-over-year revenue fell from $1.12 billion in the third quarter of 2007 to $897.66 million in Q3 2008, a drop of some 20 percent. Total operating expenses were up 16 percent in Q3 2008 compared to Q3 2007, thanks to restructuring charges of some $8 million and $33 million in additional R&D spending this year. NVIDIA was still profitable in the third quarter, but the company's net income of $61.7 million is a far cry from last year's $235.7 million over the same period.

The year-to-date numbers are actually a bit bleaker. NVIDIA's revenue is up two percent for 2008 over 2007, but the company's cost of revenue has risen dramatically over that same period. In the first nine months of 2007, NVIDIA's total cost of revenue was $1.58 billion. In the first nine months of 2008, the company's cost of revenue has been $1.91 billion, an increase of 21 percent. Part of this is the $200 million charge the company took against its cost of revenue back in the second quarter, but digging in the company's other reports this year, there's another explanation. Back in Q1, NVIDIA reported revenue of $1.15 billion, up from $844 million in 2007. Second-quarter revenue, however, was down year-on-year, from $935.3 million in 2007, to $892.7 million in 2008.

NVIDIA entered 2008 with a ferocious bang, but has since lost that momentum; the company's edge in total 2008 revenue over 2007 will not last through the fourth quarter unless something turns around. The company's 9300/9400 chipset launch and Apple design wins were big news in Q3, but it's hard to see how the company will spin its fortunes in a new direction without new GPU SKUs—and these are curiously lacking.

The 55nm transition

Jen-Hsun Huang, president and CEO of NVIDIA, characterized the company's Q3 performance as follows: "We made good progress on multiple fronts during the quarter," Huang said. "Improving gross margin while managing operating expenses enabled us to significantly improve our operating fundamentals. We transitioned our performance segment GPUs to 55 nanometers and are now poised to recapture lost share." [Emphasis added.]

Jen-Hsun's claim that NVIDIA has transitioned its performance parts to 55nm seems semi-accurate. The company has moved a reasonable group of cards down to 55nm, but most of these—the 9400 GT, 9500 GT, and the 9800 GT/+ are currently available in both 55nm and 65nm flavors. 55nm 9800 GTs are on the market (remember, that's an 8800 GT), but a brief scan of NewEgg showed only one vendor actually advertising a solution as being built on 55nm. I suspect that some of the 9600 GT cards now on the market are now 55nm as well; there seem to be an awful lot of cheap 9600 GT's for sale with single-slot coolers at 700MHz+ clockspeeds. This is all well and good, a 55nm GPU is cheaper to produce than a 65nm GPU (assuming equal yields), but the transition is being kept on the down-low, probably to protect sales of remaining 65nm products.

The cards NVIDIA really needs to bring to market on 55nm, of course, are the GTX 260 and 280. There's no real option of transitioning the lower GF 9 series into new SKUs and prices; the general market has had all of that from NVIDIA that it can take. Any financial relief that comes in Q4 (and any significant boost thanks to Christmas shopping) will almost certainly be tied to when these card refreshes appear and how they are priced—assuming, of course, that they appear at all.

Rambus lowers the boom

In other news, Rambus, everyone's favorite DRAM IP holder, has filed a complaint against NVIDIA with the International Trade Commission, alleging that the GPU designer has
infringed on Rambus patents covering DDR, DDR2, DDR3, LPDDR, GDDR2, and GDDR3. According to Tom Lavelle, senior vice president and general counsel at Rambus, "We believe this
action is necessary given NVIDIA’s continued willful infringement of our patents. Rambus engineers and scientists have made tremendous contributions to the industry, and we
need to protect our patented inventions on behalf of our shareholders and in fairness to our paying licensees."

There's a certain truth to that when all your company does is produce patents, but Rambus has generally emerged the winner from its court battles with the DRAM industry. NVIDIA didn't have anything to say about the Rambus complaint when it released its own numbers, but did note that the difference in its earnings between the generally accepted accounting principles (GAAP) and non-GAAP measures was partially accounted for by "a nonrecurring charge against cost of revenue related to a royalty dispute." No word yet on whether or not that royalty dispute has anything to do with Rambus.